ALA is one of my good stock..
Alcatel to Buy Newbridge for $7.1 Billion in Stock to Extend Product Range
By Daniel Tilles
Alcatel to Acquire Newbridge for $7.1 Bln in Stock (Update1)
(Adds analyst comment from fourth paragraph.)
Paris, Feb. 23 (Bloomberg) -- Alcatel SA, Europe's No. 2
phone-equipment maker, agreed to buy Newbridge Networks Corp. for
US$7.1 billion in stock, expanding its product range to compete
with Lucent Technologies Inc. and Cisco Systems Inc.
Alcatel will exchange 0.81 of an American depositary share
for each Newbridge share. That values the Kanata, Ontario-based
company at about $38.98 a share, or about 13 percent more than its
New York Stock Exchange close of 34 3/8. Paris-based Alcatel fell
3/8 to 47 3/4 on the NYSE yesterday.
Newbridge gives Alcatel telecommunications switches that
deliver voice, data and video on a single network, a market where
the French company lags No. 1 Lucent, Cisco and Nortel Networks
Corp. Many phone companies, such as SBC Communications Inc.,
prefer the asynchronous transfer mode, or ATM, switches to routers
for moving bulk traffic like corporate data.
''This is a bet Alcatel had to take given Newbridge was the
last available player in the sector,'' said ABN Amro analyst David
Seban-Jeantet, who rates Alcatel shares ''buy.'' ''The price is
justified given the synergies Alcatel expects by 2001.''
Alcatel, which sees cost savings of $150 million in 2001,
said it expects the acquisition will have a positive impact on
earnings in 2000 and will ''substantially'' enhance earnings after
goodwill as soon as 2001.
Newbridge will be merged with Alcatel's Carrier Data
Division. Based in Canada, the combined group will have annual
sales of more than $2.5 billion on a pro forma basis.
Alcatel's Moves
Alcatel, second to Ericsson AB in Europe, has already spent
$8.5 billion in the past 17 months, buying companies that make
equipment and software for data networking and Internet access.
Acquiring Newbridge would give Alcatel customers who are buying
ATM switches until so-called Internet Protocol technology can
offer the same reliability.
It also would move the French company into a market that's
growing faster than sales of its traditional voice switches. ATM
sales industry-wide for telecommunications networks will climb 36
percent this year to $5.3 billion, according to Dell'Oro Group
Inc., a market research firm.
Phone companies like ATM because it combines the efficiency
of packet technology, which breaks up signals into digital bits
and occupies all the available capacity on a telecommunications
network, with the reliability of a voice network.
Internet Protocol, the standard in routers, can't track the
flow of packets on a network like ATM can, making it less popular
for video and other sensitive traffic that can become distorted if
all the packets don't arrive on time.
Newbridge had 8.4 percent of the ATM telecommunications
market in the third quarter, according to Dell'Oro. That ranks it
fourth behind Lucent's 32 percent, Cisco's 27 percent and Nortel's
21 percent. ATM also is used for data networking at corporations,
a smaller market in which Newbridge isn't a major supplier.
On the Block
Terry Matthews, founder, chairman and chief executive of
Newbridge, put Canada's No. 2 phone-equipment maker up for sale in
November after the company warned for the sixth time in nine
quarters that profit would fall short of expectations. Newbridge
was late in developing new products and lost market share.
Last March, before Alan Lutz resigned as Newbridge president
in November, Tellabs Inc. held preliminary talks to buy the
company. Those discussions fell through. Lutz was replaced by
Pearse Flynn.
An agreement with Alcatel could jeopardize the sales that
Newbridge gets through Siemens, analysts said. Siemens, which
provides Newbridge with about 15 percent of its revenue by
reselling ATM switches, was unavailable to comment.
Some analysts wondered how much Newbridge will improve
Alcatel's businesses, since the telecommunications industry is
moving to networks that run on Internet Protocol only.
''The world is moving to IP,'' Eric Burkel, an analyst with
Handelsbanken Markets said before the acquisition was announced.
''The deal is beginning to look more like buying customers and
market share rather than technology.''
Warning Aftermath
Newbridge last month said demand for its products is rising,
especially in North America. The company also makes some voice
switches, equipment for wireless data networks and gear to boost
the capacity of copper lines for high-speed Internet access. The
voice switches have accounted for about 30 percent of sales in
recent quarters, with ATM products making up most of the rest.
Alcatel has used acquisitions to broaden its range of
Internet-based software and hardware products in the aftermath of
a profit warning in September 1998 that sent the company's shares
plunging 38 percent in one day.
Last month, the company said it will start selling products
in North America that let businesses combine voice and data
services on one phone line using Internet-based technology, a
market that could be worth US$2.8 billion by 2003.
Alcatel said the system was developed using expertise
acquired when it bought Xylan Corp. and Packet Engines Inc.
Alcatel bought Packet Engines of the U.S. for US$315 million
in December 1998. Last year, it paid US$2 billion for Xylan Corp.,
a Calabasas, California-based data-networking company. Other
acquisitions included Assured Access Technology Inc., Internet
Devices Inc. and Genesys Telecommunications Laboratories Inc.
Newbridge hired Morgan Stanley Dean Witter & Co. in November
to advise it on a possible sale. CSFB advised Alcatel on the
transaction.
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